The U.S. economy is stuck in a malaise.
2015's annual growth rate is expected to be a mere 2 percent to 2.5 percent —about the same as the 2.2 percent average rate at which the economy has puttered since the recession's end in mid-2009. This lackluster pace has created the lowest labor force participation rate in four decades, stagnant wages, and high long-term unemployment. Considering that 1 percent to 2 percent growth is needed just to keep up with population growth and to absorb the annual influx of graduates in the workforce, a 2 percent growth rate feels like we are just treading water.
The U.S. has many tools at its disposal to accelerate growth to a level on par with the dynamism experienced over our storied history. But government policy is stifling progress. To help shift the economy out of neutral and into high gear, here are three steps Washington could take:
At over $18 trillion, the U.S. federal debt is currently 74 percent of gross domestic product, its highest level as a percentage of GDP since the end of WWII, and likely will surpass 100 percent by 2040. Without changes in government policy, all federal revenue will be devoted to interest payments and mandatory spending by late next decade.
Despite the economic harm that the debt is inflicting on voters of all political stripes and ages, fiscal responsibility continues to take a backseat to political profligacy. An endless list of promises and giveaways by politicians in office and on the campaign trail are terrifying job creators.
When the government borrows so much, capital becomes more expensive for the private sector and typically reduces investment. Despite easy monetary policy, over the past year, foreign investment in the U.S. was at the lowest level in a decade, and more businesses now are closing than opening. Capital investments often are multi-decade commitments, and businesses must trust that their government will take rational economic actions if they are to make these long-term commitments and create jobs.
Enacting a comprehensive debt-reduction plan is the best means to reversing this trajectory that is destined to lead us toward long-term economic mediocrity. Short of that, at least stanching the additions to the deficit and halting the promise of even more freebies would be a great start to restoring some of the business community's confidence.
At 35 percent, the top U.S. corporate tax rate is the highest among the advanced Organization for Economic Cooperation and Development (OECD) countries. After adding average state taxes, the rate creeps up to 39 percent, making it 10 percentage points higher than the rest of the developed world. This makes America an uncompetitive place for business.
In the long term, stimulating growth will require reforming numerous aspects of the tax code — first and foremost, its uncompetitive rate. Lowering it to somewhere in the mid-20s would put it in line with what is typical in OECD countries. At the same time, loopholes and other preferences — the epitome of crony capitalism — are not pro-growth and should be ended across the board.
In the short term, a repatriation tax holiday would give the U.S. economy a much-needed shot in the arm. It is predicted that a holiday would bring back over a half-trillion dollars of the over two trillion dollars that U.S. multinational companies currently have stranded overseas. That is a huge amount of money that could be invested immediately into the U.S. economy to create jobs and drive growth.
Some regulation is essential in order to level playing fields and protect consumers, but it is not in America's DNA, or in its financial interest, to have a government-controlled economy.
Just last year alone, there were nearly ten new federal regulations added every day, on average. When combined with prior regulations, the average American company now pays nearly $10,000 per worker in compliance costs, and the average manufacturer pays $20,000. In fact, over six in ten U.S. manufacturing firms report that, given the opportunity, they would shift the money being used to comply with federal regulations to productive investment.
The proliferation of federal regulations over the past couple decades is estimated to have slashed our nation's GDP by 2 percent annually. We need a reasoned and stable regulatory policy for the long term. We should carefully compare the relative costs and benefits of all proposed regulations in an unbiased way. We should systematically and periodically review existing regulations to ensure that they continue to serve a valid public purpose and generate benefits that exceed their costs.
It's time to get our economy out of neutral and growing again. Doing so will require Washington to muster the courage to put the brakes on the debt, place our companies on a globally competitive footing, and limit regulations to those that make sense.
Commentary by Steve Odland, CEO of the Committee for Economic Development and former CEO of Office Depot and AutoZone. Follow him on Twitter @SteveOdland.